- - AGRICULTURE CORE CURRICULUM - - (CLF1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1400) Unit Title: FINANCE AND CREDIT ____________________________________________________________________________ (CLF1406) Topic: GLOSSARY Time Taught in Year(s) 0 hour 3/4 ____________________________________________________________________________ NOTE: This is to serve as a supplement to CLF1401, 1402, 1403, 1404, and 1405 TOPIC PRESENTATION: GLOSSARY ASSETS: The economic resources of an accounting entity that can be expressed in terms of money. BORROWER: 1) Generally, a person who takes or receives something with the intention of returning it after a period of time or use; 2) A person or organization that takes or receives money from another with the intention of paying it back with interest. (The United States government is the largest borrower in the world.) CONSUMER CREDIT: Money used to purchase consumable items that do not contribute to business income; examples are food, clothing, household goods. COOPERATIVE: Generally, a group of persons who combine resources to buy or sell more efficiently. A cooperative eliminates the need for a middleman, and is therefore more profitable for its members. Agricultural cooperatives pool capital to buy machinery and supplies, and also to provide storage, processing, transportation, and other services which eliminate wholesale costs. The success of farm cooperatives in the United States can be attributed mainly to the Capper-Volstead Act of 1922 which reduced the threat of antitrust legislation in agriculture. CONTINGENT LIABILITY: An obligation which MAY develop out of an existing situation. Potential tax liability is the most common contingent liability in agriculture. CREDIT RISK: One of the three factors that influence interest rates. Credit risk is the risk incurred by a lender that a loan will not be repaid. This risk varies with the creditworthiness of each borrower. The greater the credit risk, the higher the rate of interest charged. A lower credit risk reduces the interest rate charged. EQUITY or NET WORTH: The interest or claim of an entity's owners on the entity's assests. FARM CREDIT ADMINISTRATION: An agency of the U.S. federal government that administers the Farm Credit System. The FCA supervises financial organizations that grant short-term and long-term loans to farmers and producer cooperatives. The FCA has operated as an independent agency since the passage of the Farm Credit Act of 1971. It is composed of 12 Federal Land Banks, more than 550 Production Credit Associations, and 13 Banks for Cooperatives. The FCA supplies approximately 25% of the agricultural credit in the U.S. FARMERS HOME ADMINISTRATION: A U.S. government lending agency within the USDA. The Farmers Home Administration makes loans for farm ownership, soil and water improvements, and disaster relief. It also makes loans to farmers who have limited resources. The FmHA makes insured loans (in which it is the actual lender), and also guarantees loans made by other lenders. The main requirement for getting a FmHA loan is the inability to get credit elsewhere, that is, the borrower must be unable to obtain credit, at a reasonable rate, from more conventional sources. FEDERAL LAND BANK (FLB): Organizations created by the Federal Farm Loan Act of 1916 to supply mortgage credit to agricultural producers. Originally there were 12 banks set up by the federal government with government capital. Hit hard by the Great Depression, the Federal Land Banks were rebuilt under the Farm Credit Administration. In 1933, the FCA expanded by creating Production Credit Corporations and Banks for Cooperatives. The former deal with short-term financing associations, and the latter are concerned with financing farm cooperatives. The FCA, consisting of these organizations, supplies about 25% of current agricultural credit. INTEREST RATE: The charge rate for borrowed money, usually stated as a percentage. On a loan it is determined by credit supply (i.e., money available, usually on a nationwide basis), demand, risk to the lender, and the cost to make and service the loan. It is frequently tied to the prime rate. LIABILITIES: Accounts or notes that were incurred or accrued in the past but which have not yet been paid. This includes debts, charges, or claims against the assets of a firm. Liabilities require that the business pay money, perform services, or provide goods in the future because of past transactions. LINE OF CREDIT: The amount of financing that a lender (usually a bank) is willing to extend to a borrower. A line of credit is established when someone needs a loan. The duration and amount of the line of credit depends on the borrower's credit record (borrowing history) and his/her estimated ability to make payments in the future. The borrower may draw on the line of credit, make partial or complete repayment, and draw on the line of credit again as frequently as necessary during the term of the line. Interest is charged only on the outstanding loan balance for the time it is outstanding. LOAN: 1) The act of giving or receiving something for temporary use; 2) Money that is given or received for temporary use, usually for a specific period of time, to be repaid with interest. A common type of loan is a mortgage, a loan used to purchase real property. OPERATING CAPITAL: Money used to purchase inputs that are rapidly consumed in the productive process; examples are feed, fertilizer, and labor. PRIME RATE: The interest rate that major banks charge their biggest and best customers. In general, the prime rate reflects the state of the credit markets; the rate most borrowers pay will almost always be higher than the prime rate. PRODUCTION CREDIT ASSOCIATION: A financial organization created under the Farm Credit Act of 1933, concerned mainly with financing agricultural associations that supply short-term credit to farmers. There are more than 430 production credit associations. PRODUCTIVE CREDIT: Money used to increase production or income; examples are credit used to purchase land, livestock, equipment, seed, feed, fuel, and labor. REAL ESTATE CAPITAL: Money used to purchase land, real estate, or to add improvements to real property. WORKING CAPITAL (INTERMEDIATE-TERM CAPITAL): Money used to purchase productive inputs that are used for more than one year; examples are breeding stock, equipment, and machinery. 11/12/91 GFV/EEZ/ch #%&C